Arbitrage Pricing

Given the quantity of options strikes and ongoing listings of new expiries, users may be skeptical that secondary liquidity and pricing will be sufficient to fulfill permissionless demand. However, because DoubleMarket options are redeemable for expiry value by permissioned users (or prior to expiry for market value), we expect any mispricing between supply and demand of SFTs to be rapidly resolved by:

1. Existing permissioned users adding liquidity to in-demand SFTs
2. New market makers joining the DoubleMarket whitelist to provide liquidity

Capital Efficiency

In addition to whitelisting with DoubleMarket, market-makers will need to consider their capital costs related to hedging minted positions.

For example, a market maker minting a call option through DoubleMarket to deposit in an AMM would likely want to hedge this position with an offsetting short in the same maturity & strike on a CeFi venue, or with a delta-hedged position.

• Short position may have ongoing variation margin requirements that need to be met
• AMM pool and/or short may need to be rebalanced to maintain a delta-neutral position
• sudoswap is not a common pool for market-makers so may require some technology investment

Overall, we expect that this tax on capital efficiency for market makers will be offset by markups on the minted options relative to the underlying options on centralized venues. This will likely translate into the tokens trading at premiums of 5-25% above the underlying options.

This premium is likely acceptable given the asymmetric payoffs on options justifying the additional point of access.